Companies Act 2006 - Section 626

Section 626: Reduction of capital in connection with redenomination

917. Following a redenomination of a company’s share capital, it is likely that the
company will be left with shares expressed in awkward fractions of the new currency, for
example, 0.997 dollars or 1.01 euros. The company may therefore wish to renominalise the
value of the shares affected (that is, alter the nominal value of these shares) to obtain share
values in whole units of the new currency. It can do this in one of two ways: if the company
has distributable reserves it may capitalise those reserves to increase the nominal value of the
shares affected; alternatively, it may reduce its share capital using the procedure set out in
section 626.

918. This section enables a company to renominalise the value of its shares by cancelling
part of its share capital. A special resolution of the company’s members is required but there
is no need for the directors to make a solvency statement or for the company to go to court
(as required where a company reduces its share capital under Chapter 10 of this Part).

919. Under subsection (3), a resolution to reduce capital in connection with a
redenomination must be passed within 3 months of the resolution to redenominate the
company’s share capital.

920. Subsection (4) provides that the amount by which a company can reduce its share
capital using this new provision is capped at 10% of the nominal value of the company’s
share capital immediately after the reduction. This 10% cap is required by the Second
Company Law Directive (77/91/EEC) and applies to any reduction of capital in a public
company which is not approved by the court.

921. Where a company reduces its share capital under this section, the amount by which
the company’s share capital is reduced must be transferred to a new non-distributable reserve
(see section 628).

Section 627: Notice to registrar of reduction of capital in connection with redenomination

922. This section sets out the requirements as to notice where a company reduces its share
capital in connection with a redenomination of its share capital (that is, to renominalise the
value of its shares). Notice must be given to the registrar in accordance with subsection (1) of
this section. This notice must be accompanied by a statement of capital (see note on section
619).

923. The resolution to reduce the share capital must be filed with the registrar in
accordance with section 30.

924. The reduction of capital will not take effect until the documents that are required to be
delivered to the registrar under subsections (1) and (2) are registered by the registrar (see
subsection (5)).

925. In addition to delivering the above documents to the registrar, within 15 days of the
date that a resolution to reduce capital in connection with a redenomination is passed, under
subsection (6) the company must also deliver to the registrar a statement made by the
directors confirming that the reduction of share capital was made in accordance with
subsection (4) of section 626.

926. If a company fails to comply with the procedural requirements as to notice the
company and every officer of the company commits an offence. The penalty for this offence
is set out in subsection (8). In addition, where the statement made by the directors under
subsection (6) is misleading, false or deceptive in a material particular, the directors are liable
to an offence under section 1112.

Section 628: Redenomination reserve

927. Where a company reduces its share capital under section 626 it must transfer an
amount equal to the value of the reduction to a non-distributable reserve known as the
redenomination reserve.

928. This section provides that amounts transferred to the redenomination reserve may be
used by the company in paying up shares to be allotted to existing members as fully paid
bonus shares. Subject to this, the provisions of the Companies Acts relating to the reduction
of a company’s share capital, apply to the redenomination reserve as if it were paid-up share
capital. These provisions mirror those contained in section 733 (which restates section 170 of
the 1985 Act).